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Leasing &Hire Purchase

Leasing and Hire Purchase are the most popular forms of Asset Finance in the UK. They allow businesses to acquire equipment, machinery and vehicles which would otherwise be unaffordable, or put a strain on working capital.

Only bank overdrafts and credit cards are used more frequently by SMEs than Leasing and Hire Purchase

Key requirement

For approval, you must be able to demonstrate your ability to fund the Hire Purchase payments or fulfil the Finance Lease rental payments

Key benefit

The process is quick, especially for common items like vehicles

Key consideration

Do you want to own the equipment at the end of the contract?

What is Leasing & Hire Purchase?

Leasing and Hire Purchase are two of the most popular forms of finance in the UK, behind only bank overdrafts and credit cards in terms of SME use.

They allow businesses to get vital equipment and machinery without large upfront costs that can put a strain on cashflow and working capital.

Hire Purchase contracts usually involve a deposit and fixed payments over an agreed term.

A Lease (either a Finance or Operating Lease) allows the business to use the asset in exchange for rental payments, which may include an advanced rental, over a predetermined period.

“It does the job that businesses need it to, allowing them to get the asset on board quickly and simply so they can start using it within their business.”

Sam DringSenior Manager, Asset Finance at Lloyds Commercial Banking

What is Hire Purchase?

Hire Purchase is where the borrower agrees to purchase an asset from the lender over a specified period. You own the item at the end of the contract. Usually, there is a small fee at the end of the contract to secure title to the asset.

What is Leasing?

A Finance Lease works as a rental agreement. The business will agree to a fixed or minimum term rental period for an asset and make regular rental payments for the duration of the Lease contract. At the end of the contract, the business may have an option to continue renting, or to return or possibly replace the equipment.

Who’s involved?

The application process is simple for Finance Lease and Hire Purchase. Businesses can apply directly to a finance provider, from the equipment provider or manufacturer or through a broker.

Who is eligible for Leasing and Hire Purchase?

There are few restrictions on who or what type of business can apply for Leasing and Hire Purchase finance and there are few business assets that you cannot fund through Asset Finance.

The biggest factor in approval for Leasing and Hire Purchase is proving your ability to make the rental payments. And even then, you don’t necessarily need to be profitable, just cash positive.

Providers can also consider the revenues that the asset investment may generate for your business and the impact that it will have on your ability to service the rentals.

Another important factor is your credit rating. A poor credit rating could make approval more difficult but it’s not always a barrier to approval.

Risks of Leasing and Hire Purchase

Charges and fees may apply at the end of the contract if you wish to secure the asset.

Defaulting

If you default on repayments the asset may be recovered and your credit report may be affected.

94% of Asset Finance applications are successful

British Business Bank Small Business Finance Markets report 2016/17

The different type of leasing options

Finance Lease vs Operating Lease

Finance Lease – You’re responsible for paying for most of the item’s cost over the period of its life, and you’re responsible for maintaining it as if you own it.

Operating Lease – You won’t pay for the full cost of the asset as effectively you’re renting it for a period shorter than the economic life. Therefore, the lease-provider retains the risk and reward of ownership, while you remain responsible for ensuring it remains in good working order during the agreement period.

Need to know / Checklist

Does Leasing or Hire Purchase work best for you?

What are the fixed payment?

How long is the term of your contract?

What happens at the end of the contract?

What options exist for a secondary rental period?

Key considerations / eligibility

Are you getting the best option for your business?

Can you afford the monthly repayments/rentals or does the contract put too much stress on your working capital?

Do you have a good credit rating?

Do you want to own the asset at the end of the contract?

If you want to keep the asset at the end of the contract, is there a fee involved?

Are you responsible for your asset's maintenance or is the lease provider?

Are there tax benefits - Annual Investment Allowance or Capital Allowances - you or the finance provider could make use of when acquiring the asset?

Is Leasing and Hire Purchase right for you?

About your business

Business stage

Early stage to established with a trading history

Annual turnover

Any

Sectors

Any

Regions

Any

What's your next step?

Glossary

Cash positive: If your business is cashflow positive it means your cash inflow is greater than your cash outflow. It’s specific to working capital and the money coming in and out of your company on any given day, rather than profit which indicates money coming in and out over a longer term. Being cash positive doesn’t mean you’re profitable and being profitable doesn’t mean you’re cash positive.

Advanced Rentals: With an Advanced Rental lease agreement, you pay for the upcoming period of use, rather than the one that has just passed. For example, if you have an Advanced Rental lease and pay monthly, you will pay at the start of that month, rather than at the end.

Other finance options

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We are a UK government owned business development bank increasing the supply of finance available to growing smaller and medium sized businesses. The British Business Bank is not regulated or authorised by the Financial Conduct Authority (FCA) or the Prudential Regulation Authority (PRA).